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Form 8-K Forestar Group Inc. For: Aug 05

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August 5, 2015 6:09 AM EDT



 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 8-K
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
Date of Report: August 5, 2015
(Date of earliest event reported)
 
FORESTAR GROUP INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
Commission File Number
 
26-1336998
(State or other jurisdiction of incorporation or organization)
 
001-33662
 
(I.R.S. Employer
Identification No.)
 

6300 Bee Cave Road, Building Two, Suite 500
Austin, Texas 78746
(Address of principal executive offices) (zip code)
 
(512) 433-5200
(Registrant’s telephone number, including area code)
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: 
o       Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o       Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o       Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o       Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

1



Item 2.02. Results of Operations and Financial Condition.
 
On August 5, 2015, Forestar Group Inc. (the “Company”) issued a press release announcing the Company’s results for the quarter ended June 30, 2015. A copy of the press release is furnished as Exhibit 99.1 of this report.


 Item 7.01. Regulation FD Disclosure
 
On August 5, 2015, management of the Company will participate in a conference call discussing the Company’s results for the quarter ended June 30, 2015. A copy of the presentation materials to be used by management is furnished as Exhibit 99.2 of this report.


Item 9.01. Financial Statements and Exhibits.
 
(d) Exhibits.
 
Exhibit
 
Description
 
 
 
99.1

 
Press release issued by the Company on August 5, 2015, announcing the Company’s results for the quarter ended June 30, 2015.
 
 
 
99.2

 
Presentation materials to be used by management in a conference call on August 5, 2015, discussing the Company’s results for the quarter ended June 30, 2015.




2



SIGNATURE
 
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
FORESTAR GROUP INC.
 
 
 
 
 
 
Date:
August 5, 2015
By:
/s/ Christopher L. Nines
 
 
 
Name:
Christopher L. Nines
 
 
 
Title:
Chief Financial Officer and Treasurer


3



EXHIBIT INDEX
 
Exhibit
 
Description
 
 
 
99.1

 
Press release issued by the Company on August 5, 2015, announcing the Company’s results for the quarter ended June 30, 2015.
 
 
 
99.2

 
Presentation materials to be used by management in a conference call on August 5, 2015, discussing the Company’s results for the quarter ended June 30, 2015.

4
Exhibit 99.1



NEWS
RELEASE

FOR IMMEDIATE RELEASE
CONTACT:     Anna E. Torma
(512) 433-5312

FORESTAR GROUP INC. REPORTS SECOND QUARTER 2015 RESULTS

AUSTIN, TEXAS, August 5, 2015—Forestar Group Inc. (NYSE: FOR) today reported a second quarter 2015 net loss of approximately ($34.5) million, or ($1.01) per share outstanding, compared with second quarter 2014 net income of approximately $14.8 million, or $0.34 per share outstanding. Second quarter 2015 results include non-cash charges of approximately ($36.7) million, or ($1.07) per share, after-tax, principally related to impairment of proved properties and unproved leasehold interests and exploratory dry hole costs associated with non-core oil and gas assets in Oklahoma, Nebraska and Kansas. Excluding special items, second quarter 2015 net income was $2.2 million, or $0.06 per share.
 
 
Second Quarter
 
 
 
2015

 
2014

 
 
 
 
 
Net income (loss) per share - as reported
 

($1.01
)
 

$0.34

 
 
 
 
 
Special items per share (after-tax):
 
 
 
 
Proved property impairments
 
0.47

 
—

Unproved leasehold interest impairments
 
0.40

 
—

Exploratory dry hole expense and other charges

 
0.20

 
—

 
 
 
 
 
Total special items per share (after-tax)
 
$
1.07

 
$
—

 
 
 
 
 
Net income per share - excluding special items
 
$
0.06

 
$
0.34


“Following completion of our strategic review, we are executing our strategic initiatives focused on growing our core real estate business and harvesting cash flow from our non-core oil and gas business by significantly lowering its capital expenditures and operating costs,” said Jim DeCosmo, President and Chief Executive Officer of Forestar. “Consistent with the execution of initiatives related to our non-core oil and gas business, second quarter non-cash charges were principally related to well results, lower oil price forecasts, the suspension of exploration and drilling operations in Oklahoma, Nebraska and Kansas, and increased likelihood that these non-core oil and gas assets will be sold. Excluding these non-cash charges, the oil and gas segment generated essentially break-even segment results despite a significant decline in oil and gas prices, which were offset by a 21% increase in oil production and lower operating costs compared with second quarter 2014.”

Stable Real Estate Market Demand and Low Inventories
"Our real estate segment results continue to reflect stable market demand in our communities and low inventories, with residential lot sales activity up almost 80% compared with first quarter 2015, driven principally by timing related to takedown schedules with homebuilders. In addition, lot prices and margins remain strong, reflecting the execution of our strategy."

Growing Core Real Estate Business and Investing in Multifamily Opportunities
"We continued to grow our core real estate business, acquiring two new residential community sites during the quarter. Construction continued on our other multifamily projects and two new projects started construction during the quarter in Nashville and Charlotte. Multifamily construction and leasing activity continued to make solid progress by delivering the first units at Denver 360° and Acklen in Nashville, and substantially completing construction of the Midtown Cedar Hill project near Dallas in second quarter.”

1



Forestar manages its operations through three business segments: real estate, oil and gas and other natural resources.

REAL ESTATE

Second Quarter 2015 Significant Highlights (Includes Ventures)

•
Sold 519 developed residential lots for over $73,400 per lot and average gross profit of over $34,400 per lot
•
Sold 783 acres of non-core residential tracts for over $4.0 million, generating earnings of $1.3 million
•
Sold 21 commercial acres for nearly $82,700 per acre
•
Sold 1,248 acres of undeveloped land for over $3,000 per acre

Segment Financial Results:
($ in millions)
 
Q2 2015
 
Q2 2014
 
Q1 2015
Segment Revenues
 
$39.4
 
$55.2
 
$32.8
Segment Earnings
 
$15.5
 
$27.3
 
$9.1

Real estate segment earnings decreased in second quarter 2015 compared with the prior year principally due to a second quarter 2014 gain of $10.5 million associated with the exchange of over 10,000 acres of timber leases for 5,400 acres of undeveloped land from the Ironstob venture, lower undeveloped land sales and decreased residential lot sales activity. In second quarter 2015, average lot prices were over $73,400 per lot and average gross profit was over $34,400 per lot, higher than second quarter 2014, reflecting stable market demand in our communities and low inventories. Second quarter 2015 real estate segment results also included a $1.2 million gain associated with reduction of the surety bond issued by the company in connection with the Cibolo Canyons Special Improvement District bond offering in 2014. Real estate segment earnings increased in second quarter 2015 compared with first quarter 2015 primarily due to higher residential lot and tract sales, and a $1.2 million gain associated with the surety bond reduction.

OIL AND GAS

Second Quarter 2015 Significant Highlights (Includes Ventures)

•
Incurred non-cash charges of approximately ($57) million principally for impairment of proved properties and unproved leasehold interests and exploratory dry hole costs related to non-core oil and gas assets in Oklahoma, Nebraska and Kansas
•
Increased oil production by over 21% compared with second quarter 2014, principally due to additional producing wells in the Bakken/Three Forks
•
Added nine Bakken/Three Forks gross wells; 10 Bakken/Three Forks gross wells waiting on completion at quarter-end with 6.5% average working interest
•
Leased 800 net mineral acres to third parties, principally in Louisiana

Segment Financial Results:
($ in millions)
 
Q2 2015
 
Q2 2014
 
Q1 2015
Segment Revenues
 
$16.2
 
$24.4
 
$13.2
Segment Earnings (Loss)
 
($56.9)
 
$9.5
 

($2.9
)


Oil and gas segment results decreased in second quarter 2015 compared with second quarter 2014 and first

2


quarter 2015 principally due to approximately ($57) million in non-cash charges, which include approximately ($25) million related to impairment of proved properties in Nebraska, Kansas and Oklahoma, ($21) million related to impairment of unproved leasehold interests in Oklahoma, Nebraska and Kansas, and ($11) million principally related to exploratory dry hole costs in Oklahoma. Excluding these non-cash charges, second quarter 2015 oil and gas segment results would be essentially break-even, as a 21% increase in oil production and lower operating costs offset a significant decline in average oil and gas prices. First quarter 2015 oil and gas segment results also included approximately $2.8 million in restructuring costs and $1.2 million in gains associated with the sale of leasehold interests.

OTHER NATURAL RESOURCES

Second Quarter 2015 Significant Highlights (Includes Ventures)

•
Sold over 55,300 tons of fiber for $13.62 per ton
•
Generated $0.2 million in revenues related to amortization and termination of existing groundwater reservation agreement

Segment Financial Results:
($ in millions)
 
Q2 2015
 
Q2 2014
 
Q1 2015
Segment Revenues
 
$1.9
 
$3.5
 
$1.8
Segment Earnings (Loss)
 
($0.0)
 
$2.1
 
($0.4)

Second quarter 2015 other natural resources segment results declined compared with prior year principally due to $1.4 million in earnings in second quarter 2014 associated with a groundwater reservation agreement and termination of a timber lease. Second quarter 2015 other natural resources segment earnings increased compared with first quarter 2015 principally due to lower operating costs and higher fiber sales volumes.

OUTLOOK

Acquiring, Entitling and Developing Residential and Mixed-Use Communities
“With relatively stable market demand in our residential communities and a backlog of almost 1,400 lots under contract with builders, we anticipate residential lot sales in 2015 to be in the range of 1,800 - 1,900 lots, with higher average lot margins compared with 2014. However, as a result of construction and inspection delays associated with abnormally wet weather conditions in Texas during second quarter, there is some timing risk associated with final completion and sale of approximately 300 lots currently under development near Houston, which may be delayed until first quarter 2016. In addition, consistent with our strategy and initiatives focused on growing our core real estate business, we have acquired five new residential community sites in 2015, representing approximately 640 future planned lots in Charlotte, Nashville, Tucson, Houston and Atlanta.”

Investing in Multifamily Opportunities
“We believe Forestar is well positioned to grow net asset value through development and ownership of high-quality multifamily communities with relatively stable supply and demand fundamentals in our target markets. Consistent with our strategic initiative to invest in multifamily opportunities, including projects which generate recurring cash flows, two new multifamily projects started construction in second quarter, Music Row in Nashville and Dillon in Charlotte. These two projects are wholly-owned, and are expected to represent an additional 609 multifamily units. We expect to continue to focus on growing our pipeline of multifamily development sites utilizing tax efficient strategies from timberland sales when possible. Construction has been substantially completed on Midtown Cedar Hill, near Dallas, which is almost 90% leased and is being marketed for sale. In addition, Acklen in Nashville and 360° in Denver both delivered units during second quarter and are leasing at rates above our investment underwriting.”

Harvesting Cash Flow from Oil and Gas    
“We continue to expect 2015 oil and gas production to remain essentially flat compared with 2014, despite a significant reduction in capital investments. We have restructured our oil and gas business to focus on generating

3


cash flow by significantly lowering planned capital expenditures and operating costs. As a result, excluding restructuring costs, second quarter 2015 oil and gas segment operating costs were down over 44% compared with second quarter 2014. Drilling and completion activity in second quarter 2015 was principally related to the Bakken/Three Forks, with nine gross Bakken/Three Forks wells generating initial production and ten gross wells waiting on completion. Only four new gross wells were approved in second quarter 2015 for approximately $1.3 million of additional investment, all located in the core of the Bakken/Three Forks. We anticipate 35-40 gross wells have generated or will commence initial production in 2015, principally related to 2014 well commitments."

Maximizing Long-Term Shareholder Value By Growing Net Asset Value
“Following completion of our strategic review in May, we are focused on building a best in class real estate business and growing net asset value by acquiring, entitling and developing residential and mixed-use communities and investing in multifamily opportunities, including projects which generate recurring cash flow. In addition, we are focused on maintaining balance sheet strength and financial flexibility with adequate liquidity, providing a solid platform for real estate growth and investment to maximize long-term shareholder value,” concluded Mr. DeCosmo.

The Company will host a conference call on August 5, 2015 at 10:00 am ET to discuss results of second quarter 2015. The meeting may be accessed through webcast or by conference call. The webcast may be accessed through Forestar’s Internet site at www.forestargroup.com. To access the conference call, listeners calling from North America should dial 1-855-546-9555 at least 15 minutes prior to the start of the meeting. Those wishing to access the call from outside North America should dial 1-412-455-6094. The password is Forestar. Replays of the call will be available for two weeks following the completion of the live call and can be accessed at 1-855-859-2056 in North America and at 1-404-537-3406 outside North America. The password for the replay is 86155311.

About Forestar Group

Forestar Group Inc. operates in three business segments: real estate, oil and gas and other natural resources. At second quarter-end 2015, the real estate segment owns directly or through ventures over 111,000 acres of real estate located in 11 states and 14 markets in the U.S. The real estate segment has 11 real estate projects representing approximately 24,400 acres currently in the entitlement process, and 76 entitled, developed and under development projects in ten states and 13 markets encompassing over 10,700 acres, comprised of over 17,600 planned residential lots and approximately 1,900 commercial acres. The oil and gas segment includes approximately 935,000 net acres of oil and gas mineral interests, with approximately 590,000 acres of fee ownership located principally in Texas, Louisiana, Georgia, and Alabama, and approximately 345,000 net acres of leasehold interests principally located in Nebraska, Kansas, Oklahoma, North Dakota and Texas. These leasehold interests include about 9,000 net mineral acres in the core of the prolific Bakken and Three Forks formations. The other natural resources segment includes sale of wood fiber and management of our recreational leases, and approximately 1.5 million acres of groundwater resources, including a 45% nonparticipating royalty interest in groundwater produced or withdrawn for commercial purposes from approximately 1.4 million acres in Texas, Louisiana, Georgia and Alabama and about 20,000 acres of groundwater leases in central Texas. Forestar’s address on the World Wide Web is www.forestargroup.com.

Forward Looking Statements

This release contains “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements are typically identified by words or phrases such as “will,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “forecast,” and other words and terms of similar meaning. These statements reflect management’s current views with respect to future events and are subject to risk and uncertainties. We note that a variety of factors and uncertainties could cause our actual results to differ significantly from the results discussed in the forward-looking statements, including but not limited to: general economic, market, or business conditions; changes in commodity prices; opportunities (or lack thereof) that may be presented to us and that we may pursue; fluctuations in costs and expenses including development costs; demand for new housing, including impacts from mortgage credit rates or availability; lengthy and uncertain entitlement processes; cyclicality of our businesses; accuracy of accounting assumptions; competitive actions by other companies; changes in laws or regulations; and other factors, many of which are beyond our control. Except as required by law, we expressly disclaim any obligation to publicly revise any forward-looking statements contained in this news release to reflect the occurrence of events after the date of this news release.


4


FORESTAR GROUP INC.
(UNAUDITED)
Business Segments
 
Second Quarter
 
First Six Months
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Revenues:
 
 
 
 
 
 
 
Real estate
$
39,409

 
$
55,173

 
$
72,239

 
$
120,653

Oil and gas
16,165

 
24,377

 
29,350

 
41,931

Other natural resources
1,856

 
3,463

 
3,646

 
5,034

Total revenues
$
57,430

 
$
83,013

 
$
105,235

 
$
167,618

Segment earnings (loss):
 
 
 
 
 
 
 
Real estate
$
15,527

 
$
27,297

 
$
24,593

 
$
50,872

Oil and gas
(56,867
)
 
9,522

 
(59,808
)
 
10,329

Other natural resources
(43
)
 
2,079

 
(434
)
 
1,551

Total segment earnings (loss)
(41,383
)
 
38,898

 
(35,649
)
 
62,752

Items not allocated to segments:
 
 
 
 
 
 
 
General and administrative expense
(5,177
)
 
(5,566
)
 
(11,197
)
 
(10,734
)
Share-based and long-term incentive compensation expense (a)
(23
)
 
(3,219
)
 
(3,481
)
 
(3,532
)
Interest expense
(8,715
)
 
(7,370
)
 
(17,536
)
 
(12,873
)
Other corporate non-operating income
47

 
130

 
95

 
252

Income (loss) before taxes
(55,251
)
 
22,873

 
(67,768
)
 
35,865

Income tax (expense) benefit
20,744

 
(8,051
)
 
25,103

 
(12,709
)
Net income (loss) attributable to Forestar Group Inc.
$
(34,507
)
 
$
14,822

 
$
(42,665
)
 
$
23,156

 
 
 
 
 
 
 
 
Net income (loss) per common share:
 
 
 
 
 
 
 
Diluted
$
(1.01
)
 
$
0.34

 
$
(1.25
)
 
$
0.53

 
 
 
 
 
 
 
 
Weighted average common shares outstanding (in millions):
 
 
 
 
 
 
 
Diluted (b)
34.3

 
43.7

 
34.2

 
43.7


 
 
Second Quarter
Supplemental Financial Information:
 
2015
 
2014
 
 
(In thousands)
Cash and cash equivalents
 
$
98,761

 
$
184,168

 
 
 
 
 
Senior secured notes
 
250,000

 
250,000

Convertible senior notes, net of discount
 
104,846

 
101,542

Tangible equity unit notes, net of discount
 
13,008

 
21,208

Other debt (c)
 
66,986

 
27,578

Total debt
 
$
434,840

 
$
400,328

Net debt
 
$
336,079

 
$
216,160

 _____________________
(a)  
Share-based and long-term incentive compensation expense declined principally as result of a 15 percent decrease in our stock price since year-end 2014, compared with a ten percent decrease in our stock price since year-end 2013, which impacted the value of vested cash-settled awards.
(b) 
Weighted average diluted shares outstanding during second quarter and first six months 2015 exclude 7.9 million shares associated with tangible equity units issued during fourth quarter 2013. The actual number of shares to be issued in December 2016 will be between 6.5 million - 7.9 million shares based on the market value of our stock. Weighted average diluted shares outstanding during second quarter and first six months 2014 includes 7.9 million shares associated with tangible equity units issued during fourth quarter 2013.
(c) 
Other debt for second quarter-end 2015 consists principally of $47.4 million in senior secured loans for two multifamily properties, and excludes unconsolidated venture debt and outstanding letters of credit of approximately $127.6 million and $14.8 million, respectively.


5


FORESTAR GROUP INC.
REAL ESTATE SEGMENT
PERFORMANCE METRICS
 
Second Quarter
 
First Six Months
 
2015
 
2014
 
2015
 
2014
REAL ESTATE
 
 
 
 
 
 
 
Owned, Consolidated & Equity Method Ventures:
 
 
 
 
 
 
 
Residential Lots Sold
519

 
537

 
808

 
1,511

Revenue per Lot Sold
$
73,413

 
$
64,056

 
$
74,422

 
$
50,228

Commercial Acres Sold
21

 
3

 
54

 
3

Revenue per Commercial Acre Sold
$
82,679

 
$
96,774

 
$
224,479

 
$
96,774

Undeveloped Acres Sold
1,248

 
3,208

 
1,979

 
12,537

Revenue per Acre Sold
$
3,027

 
$
2,460

 
$
2,928

 
$
2,202

Owned & Consolidated Ventures:
 
 
 
 
 
 
 
Residential Lots Sold
271

 
481

 
513

 
1,317

Revenue per Lot Sold
$
71,465

 
$
60,651

 
$
72,219

 
$
47,644

Commercial Acres Sold
20

 
3

 
24

 
3

Revenue per Commercial Acre Sold
$
73,345

 
$
96,774

 
$
117,014

 
$
96,774

Undeveloped Acres Sold
903

 
2,950

 
1,634

 
12,279

Revenue per Acre Sold
$
3,044

 
$
2,473

 
$
2,916

 
$
2,200

Ventures Accounted For Using the Equity Method:
 
 
 
 
 
 
 
Residential Lots Sold
248

 
56

 
295

 
194

Revenue per Lot Sold
$
75,543

 
$
93,306

 
$
78,253

 
$
67,772

Commercial Acres Sold
1

 
—

 
30

 
—

Revenue per Commercial Acre Sold
$
303,734

 
$
—

 
$
311,995

 
$
—

Undeveloped Acres Sold
345

 
258

 
345

 
258

Revenue per Acre Sold
$
2,983

 
$
2,306

 
$
2,983

 
$
2,306



SECOND QUARTER 2015
REAL ESTATE PIPELINE
Real Estate
 
Undeveloped
 
In
Entitlement Process
 
Entitled
 
Developed & Under Development
 
Total Acres (a)
Undeveloped Land
 
 
 
 
 
 
 
 
 
 
Owned
 
71,044
 
 
 
 
 
 
 


Ventures
 
4,358
 
 
 
 
 
 
 
75,402

Residential
 
 
 
 
 
 
 
 
 
 
Owned
 
 
 
21,762
 
7,160
 
626
 


Ventures
 
 
 
 
 
900
 
121
 
30,569

Commercial
 
 
 
 
 
 
 
 
 
 
Owned
 
 
 
2,668
 
1,073
 
529
 


Ventures
 
 
 
 
 
210
 
103
 
4,583

Total Acres
 
75,402
 
24,430
 
9,343
 
1,379
 
110,554

 
 
 
 
 
 
 
 
 
 
 
Estimated Residential Lots
 
 
 
15,333
 
2,270
 
17,603

 _____________________
(a) 
Excludes acres associated with commercial and income producing properties.


6


FORESTAR GROUP INC.
OIL AND GAS SEGMENT
PERFORMANCE METRICS
 
Second Quarter
 
First Six Months
 
2015
 
2014
 
2015
 
2014
Leasing Activity from Owned Mineral Interests
 
 
 
 
 
 
 
Acres Leased
800

 
1,380

 
1,623

 
3,121

Average Bonus / Acre
$
254

 
$
352

 
$
297

 
$
347

Delay Rentals Received
$
14,000

 
$
14,000

 
$
84,000

 
$
14,000

Oil & Gas Production
 
 
 
 
 
 
 
Royalty Interests (a)
 
 
 
 
 
 
 
Gross Wells (at end of the period)
528

 
547

 
528

 
547

Oil Production (Barrels) (b)
35,300

 
30,400

 
70,800

 
63,100

Average Oil Price ($ / Barrel)
$
46.83

 
$
91.75

 
$
48.67

 
$
88.44

Natural Gas Production (MMcf)
257.2

 
232.4

 
517.0

 
518.5

Average Natural Gas Price ($ / Mcf)
$
2.56

 
$
4.61

 
$
3.01

 
$
4.10

BOE Production (c)
78,100

 
69,100

 
157,000

 
149,500

Average Price ($ / BOE)
$
29.58

 
$
55.83

 
$
31.87

 
$
51.55

Working Interests
 
 
 
 
 
 
 
Gross Wells (at end of the period)
446

 
434

 
446

 
434

Oil Production (Barrels) (b)
253,900

 
206,900

 
512,000

 
346,200

Average Oil Price ($ / Barrel)
$
50.44

 
$
92.90

 
$
43.59

 
$
90.77

Natural Gas Production (MMcf)
301.8

 
227.5

 
562.4

 
427.9

Average Natural Gas Price ($ / Mcf)
$
2.73

 
$
4.39

 
$
2.81

 
$
4.84

BOE Production (c)
304,200

 
244,800

 
605,700

 
417,500

Average Price ($ / BOE)
$
44.81

 
$
82.59

 
$
39.45

 
$
80.22

Total Oil & Gas Interests
 
 
 
 
 
 
 
Gross Wells (d) (at end of the period)
942

 
948

 
942

 
948

Oil Production (Barrels) (b)
289,200

 
237,300

 
582,800

 
409,300

Average Oil Price ($ / Barrel)
$
50.00

 
$
92.75

 
$
44.20

 
$
90.41

Natural Gas Production (MMcf)
559.0

 
459.9

 
1,079.4

 
946.4

Average Natural Gas Price ($ / Mcf)
$
2.65

 
$
4.50

 
$
2.91

 
$
4.43

BOE Production (c)
382,300

 
313,900

 
762,700

 
567,000

Average Price ($ / BOE)
$
41.70

 
$
76.70

 
$
37.89

 
$
72.66

Average Daily Production
 
 
 
 
 
 
 
BOE per Day
 
 
 
 
 
 
 
Royalty Interests
859

 
760

 
868

 
828

Working Interests
3,342

 
2,690

 
3,346

 
2,305

Total
4,201

 
3,450

 
4,214

 
3,133

Working Interests BOE per Day 
 
 
 
 
 
 
 
North Dakota
2,252

 
1,566

 
2,181

 
1,188

Kansas/Nebraska
543

 
586

 
607

 
562

Texas, Louisiana and Other
547

 
538

 
558

 
555

Total
3,342

 
2,690

 
3,346

 
2,305

 _____________________
(a) 
Includes our share of venture activity of which we own a 50% interest. Our share of natural gas production was 40.1 MMcf and 82.4 MMcf in the second quarter and first six months of 2015 and 50.5 MMcf and 103.2 MMcf in the second quarter and first six months of 2014.
(b) 
Oil production includes natural gas liquids (NGLs).
(c) 
BOE – Barrels of oil equivalent (converting natural gas to oil at 6 Mcfe / Bbl).
(d) 
Represent wells in which we own a royalty or working interest in a producing well. Includes wells operated by third-party lessees/operators. Excludes 32 and 33 working interest wells at second quarter-end 2015 and second quarter-end 2014, as we also own a royalty interest in these wells.

7


FORESTAR GROUP INC.
OIL AND GAS SEGMENT

 
Second Quarter
 
First Six Months
 
2015
 
2014
 
2015
 
2014
Well Activity
 
 
 
 
 
 
 
Mineral Interests Owned (a)
 
 
 
 
 
 
 
Net Acres Held By Production
36,000

 
36,000

 
36,000

 
36,000

Gross Wells Drilled
—

 
—

 
—

 
—

Productive Gross Wells
528

 
547

 
528

 
547

Mineral Interests Leased 
 
 
 
 
 
 
 
Net Acres Held By Production (b)
47,000

 
41,000

 
47,000

 
41,000

Gross Wells Drilled
12

 
45

 
31

 
66

Productive Gross Wells (c)
414

 
401

 
414

 
401

Total Well Activity
 
 
 
 
 
 
 
Net Acres Held By Production
83,000

 
77,000

 
83,000

 
77,000

Gross Wells Drilled
12

 
45

 
31

 
66

Productive Gross Wells
942

 
948

 
942

 
948

 _____________________
(a) 
Represent wells in which we own a royalty or working interest in a producing well. Includes wells operated by third-party lessees/operators.
(b) 
Excludes approximately 8,000 net acres in which we have an overriding royalty interest.
(c) 
Excludes approximately 1,200 wells in which we have an overriding royalty, and 32 and 33 working interest wells at second quarter-end 2015 and second quarter-end 2014, as we also own a royalty interest in these wells.



8


FORESTAR GROUP INC.
OIL AND GAS SEGMENT
MINERAL INTERESTS

MINERAL INTERESTS OWNED (a) 

Forestar’s oil and gas segment includes approximately 590,000 owned net mineral acres principally located in Texas, Louisiana, Georgia and Alabama.
State
Unleased
 
     Leased (b)
 
Held By
    Production (c)
 
     Total (d)
 
 
 
(Net acres)
Texas
209,000

 
16,000

 
27,000

 
252,000

Louisiana
130,000

 
5,000

 
9,000

 
144,000

Georgia
152,000

 
—

 
—

 
152,000

Alabama
40,000

 
—

 
—

 
40,000

California
1,000

 
—

 
—

 
1,000

Indiana
1,000

 
—

 
—

 
1,000

 
533,000

 
21,000

 
36,000

 
590,000

 _____________________
(a) 
Includes ventures.
(b) 
Includes leases in primary lease term or for which a delayed rental payment has been received. In the ordinary course of business, leases covering a significant portion of leased owned net mineral acres may expire from time to time in a single reporting period.
(c) 
Acres being held are producing oil or gas in paying quantities.
(d) 
Texas, Louisiana, California and Indiana net acres are calculated as the gross number of surface acres multiplied by our percentage ownership of the mineral interest. Alabama and Georgia net acres are calculated as the gross number of surface acres multiplied by our estimated percentage ownership of the mineral interest based on county sampling.


MINERAL INTERESTS LEASED

Forestar’s oil and gas segment includes approximately 345,000 net mineral acres of leasehold interests principally located in Nebraska, Kansas, Oklahoma, Texas and North Dakota.
State
Undeveloped
 
Held By
Production (a)
 
Total
Nebraska
232,000

 
11,000

 
243,000

Kansas
12,000

 
8,000

 
20,000

Oklahoma
22,000

 
17,000

 
39,000

Texas
10,000

 
2,000

 
12,000

North Dakota
4,000

 
5,000

 
9,000

Other
18,000

 
4,000

 
22,000

 
298,000

 
47,000

 
345,000

 _____________________
(a) 
Excludes approximately 8,000 net acres of overriding royalty interests.










9


FORESTAR GROUP INC.
OTHER NATURAL RESOURCES SEGMENT
PERFORMANCE METRICS

 
Second Quarter
 
First Six Months
 
2015
 
2014
 
2015
 
2014
Fiber Sales
 
 
 
 
 
 
 
Pulpwood tons sold
36,000

 
58,200

 
63,500

 
86,400

Average pulpwood price per ton
$
9.39

 
$
11.42

 
$
9.06

 
$
10.85

Sawtimber tons sold
19,300

 
49,600

 
39,400

 
78,500

Average sawtimber price per ton
$
21.54

 
$
23.23

 
$
21.52

 
$
22.67

 
 
 
 
 
 
 
 
Total tons sold
55,300

 
107,800

 
102,900

 
164,900

Average stumpage price per ton (a)
$
13.62

 
$
16.86

 
$
13.83

 
$
16.48

 
 
 
 
 
 
 
 
Recreational Activity
 
 
 
 
 
 
 
Average recreational acres leased
100,100

 
110,000

 
101,300

 
113,200

Average price per leased acre
$
9.34

 
$
9.69

 
$
9.30

 
$
9.41

 _____________________

(a) 
Average stumpage price per ton is based on gross revenues less cut and haul costs.





























10


FORESTAR GROUP INC.
PROJECTS IN ENTITLEMENT

A summary of our real estate projects in the entitlement process (a) at second quarter-end 2015 follows:
Project
County
 
Market
 
Project Acres (b)
California
 
 
 
 
 
Hidden Creek Estates
Los Angeles
 
Los Angeles
 
700

Terrace at Hidden Hills
Los Angeles
 
Los Angeles
 
30

 
 
 
 
 
 
Georgia
 
 
 
 
 
Ball Ground
Cherokee
 
Atlanta
 
500

Crossing
Coweta
 
Atlanta
 
230

Fincher Road
Cherokee
 
Atlanta
 
3,890

Garland Mountain
Cherokee/Bartow
 
Atlanta
 
350

Martin’s Bridge
Banks
 
Atlanta
 
970

Mill Creek
Coweta
 
Atlanta
 
770

Wolf Creek
Carroll/Douglas
 
Atlanta
 
12,230

Yellow Creek
Cherokee
 
Atlanta
 
1,060

 
 
 
 
 
 
Texas
 
 
 
 
 
Lake Houston
Harris/Liberty
 
Houston
 
3,700

Total
 
 
 
 
24,430

 _____________________
(a) 
A project is deemed to be in the entitlement process when customary steps necessary for the preparation of an application for governmental land-use approvals, like conducting pre-application meetings or similar discussions with governmental officials, have commenced, or an application has been filed. Projects listed may have significant steps remaining, and there is no assurance that entitlements ultimately will be received.
(b) 
Project acres, which are the total for the project regardless of our ownership interest, are approximate. The actual number of acres entitled may vary.

11


FORESTAR GROUP INC.
REAL ESTATE PROJECTS

A summary of activity within our projects in the development process, which includes entitled (a), developed and under development real estate projects, at second quarter-end 2015 follows:
 
 
 
 
 
Residential Lots (c)
 
Commercial Acres (d)
Project
County
 
Interest
    Owned (b)
 
Lots Sold
Since
Inception
 
Lots
Remaining
 
Acres
Sold
Since
Inception
 
Acres
Remaining (e)
Projects we own
 
 
 
 
 
 
 
 
 
 
 
California
 
 
 
 
 
 
 
 
 
 
 
San Joaquin River
Contra Costa/Sacramento
 
100
%
 
—

 
—

 
—

 
288

Colorado
 
 
 
 
 
 
 
 
 
 
 
Buffalo Highlands
Weld
 
100
%
 
—

 
164

 
—

 
—

Johnstown Farms
Weld
 
100
%
 
281

 
313

 
2

 
3

Pinery West
Douglas
 
100
%
 
86

 
—

 
20

 
106

Stonebraker
Weld
 
100
%
 
—

 
603

 
—

 
—

Georgia
 
 
 
 
 
 
 
 
 
 
 
Mars Hill
Cobb
 
100
%
 
—

 
57

 
—

 
—

Seven Hills
Paulding
 
100
%
 
828

 
255

 
26

 
113

The Villages at Burt Creek
Dawson
 
100
%
 
—

 
1,715

 
—

 
57

Other projects (17)
Various
 
100
%
 
228

 
2,403

 
—

 
705

North & South Carolina
 
 
 
 
 
 
 
 
 
 
 
Habersham
York
 
100
%
 
—

 
187

 
—

 
—

Walden
Mecklenburg
 
100
%
 
—

 
387

 
—

 
—

Tennessee
 
 
 
 
 
 
 
 
 
 
 
Beckwith Crossing
Wilson
 
100
%
 
—

 
99

 
—

 
—

Morgan Farms
Williamson
 
100
%
 
79

 
94

 
—

 
—

Scales
Williamson
 
100
%
 
—

 
87

 
—

 
—

Weatherford Estates
Williamson
 
100
%
 
—

 
17

 
—

 
—

Texas
 
 
 
 
 
 
 
 
 
 
 
Arrowhead Ranch
Hays
 
100
%
 
—

 
381

 
—

 
11

Bar C Ranch
Tarrant
 
100
%
 
350

 
755

 
—

 
—

Barrington Kingwood
Harris
 
100
%
 
166

 
14

 
—

 
—

Cibolo Canyons
Bexar
 
100
%
 
944

 
825

 
130

 
56

Harbor Lakes
Hood
 
100
%
 
231

 
—

 
21

 
—

Hunter’s Crossing
Bastrop
 
100
%
 
510

 
—

 
54

 
49

Imperial Forest
Harris
 
100
%
 
—

 
428

 
—

 
—

La Conterra
Williamson
 
100
%
 
202

 
—

 
3

 
55

Lakes of Prosper
Collin
 
100
%
 
127

 
160

 
4

 
—

Lantana
Denton
 
100
%
 
1,207

 
557

 
14

 
—

Maxwell Creek
Collin
 
100
%
 
941

 
60

 
10

 
—

Oak Creek Estates
Comal
 
100
%
 
253

 
301

 
13

 
—

Parkside
Collin
 
100
%
 
—

 
200

 
—

 
—

River's Edge
Denton
 
100
%
 
—

 
202

 
—

 
—

Stoney Creek
Dallas
 
100
%
 
221

 
487

 
—

 
—

Summer Creek Ranch
Tarrant
 
100
%
 
983

 
268

 
35

 
44

Summer Lakes
Fort Bend
 
100
%
 
666

 
403

 
56

 
—

Summer Park
Fort Bend
 
100
%
 
69

 
130

 
28

 
68

The Colony
Bastrop
 
100
%
 
454

 
1,431

 
22

 
31

The Preserve at Pecan Creek
Denton
 
100
%
 
576

 
206

 
—

 
7

Village Park
Collin
 
100
%
 
567

 
—

 
3

 
2

Westside at Buttercup Creek
Williamson
 
100
%
 
1,496

 
1

 
66

 
—

Other projects (7)
Various
 
100
%
 
1,565

 
21

 
133

 
7


12


 
 
 
 
 
Residential Lots (c)
 
Commercial Acres (d)
Project
County
 
Interest
Owned (b)
 
Lots Sold
Since
Inception
 
Lots
Remaining
 
Acres
Sold
Since
Inception
 
Acres
Remaining  (e)
Other
 
 
 
 
 
 
 
 
 
 
 
Other projects (3)
Various
 
100
%
 
543

 
320

 
—

 
—

 
 
 
 
 
13,573

 
13,531

 
640

 
1,602

Projects in entities we consolidate
 
 
 
 
 
 
 
 
 
 
 
Texas
 
 
 
 
 
 
 
 
 
 
 
City Park
Harris
 
75
%
 
1,311

 
504

 
52

 
113

Timber Creek
Collin
 
88
%
 
—

 
601

 
—

 
—

Willow Creek Farms II
Waller/Fort Bend
 
90
%
 
90

 
175

 
—

 
—

Other projects (2)
Various
 
Various

 
10

 
198

 
—

 
18

 
 
 
 
 
1,411

 
1,478

 
52

 
131

Total owned and consolidated
 
 
 
 
14,984

 
15,009

 
692

 
1,733

Projects in ventures that we account for using the equity method
 
 
 
 
 
 
 
 
Texas
 
 
 
 
 
 
 
 
 
 
 
Entrada
Travis
 
50
%
 
—

 
821

 
—

 
—

Fannin Farms West
Tarrant
 
50
%
 
324

 
—

 
—

 
—

Harper’s Preserve
Montgomery
 
50
%
 
473

 
1,255

 
30

 
49

Lantana - Rayzor Ranch
Denton
 
25
%
 
1,163

 
—

 
50

 
—

Long Meadow Farms
Fort Bend
 
38
%
 
1,496

 
308

 
187

 
118

Southern Trails
Brazoria
 
80
%
 
818

 
178

 
1

 
—

Stonewall Estates
Bexar
 
50
%
 
358

 
32

 
—

 
—

Other projects (2)
Various
 
Various

 
—

 
—

 
—

 
15

Total in ventures
 
 
 
 
4,632

 
2,594

 
268

 
182

Combined total
 
 
 
 
19,616

 
17,603

 
960

 
1,915

 _____________________
(a) 
A project is deemed entitled when all major discretionary governmental land-use approvals have been received. Some projects may require additional permits and/or non-governmental authorizations for development.
(b) 
Interest owned reflects our net equity interest in the project, whether owned directly or indirectly. There are some projects that have multiple ownership structures within them. Accordingly, portions of these projects may appear as owned, consolidated or accounted for using the equity method.
(c) 
Lots are for the total project, regardless of our ownership interest. Lots remaining represent vacant developed lots, lots under development and future planned lots and are subject to change based on business plan revisions.
(d) 
Commercial acres are for the total project, regardless of our ownership interest, and are net developable acres, which may be fewer than the gross acres available in the project.
(e) 
Excludes acres associated with commercial and income producing properties.

A summary of our significant commercial and income producing properties at second quarter-end 2015 follows:
Project
 
Market
 
Interest
    Owned (a)
 
Type
 
Acres
 
Description
Radisson Hotel
 
Austin
 
100
%
 
Hotel
 
2

 
413 guest rooms and suites
Eleven
 
Austin
 
100
%
 
Multifamily
 
3

 
257-unit luxury apartment
Midtown
 
Dallas
 
100
%
 
Multifamily
 
13

 
354-unit luxury apartment
360° (b)
 
Denver
 
20
%
 
Multifamily
 
4

 
304-unit luxury apartment
Acklen (b)
 
Nashville
 
30
%
 
Multifamily
 
6

 
320-unit luxury apartment
HiLine (b)
 
Denver
 
25
%
 
Multifamily
 
6

 
385-unit luxury apartment
Elan 99 (b)
 
Houston
 
90
%
 
Multifamily
 
14

 
360-unit luxury apartment
 _____________________
(a) 
Interest owned reflects our total interest in the project, whether owned directly or indirectly.
(b) 
Construction in progress.

13


FORESTAR GROUP INC.
CALCULATION OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED)

In our second quarter and first six month 2015 earnings release and conference call presentation materials furnished to the Securities and Exchange Commission on Form 8-K on August 5, 2015, we used certain non-GAAP financial measures. The non-GAAP financial measures should not be relied upon to the exclusion of GAAP financial measures. These non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP financial statements and the accompanying reconciliations to corresponding GAAP financial measures, may provide a more complete understanding of our business. We strongly encourage investors to review our consolidated financial statements and publicly filed reports in their entirety.

Reconciliation of Non-GAAP Financial Measures (Unaudited)

The following table shows a reconciliation of net income before special items and earnings per share excluding special items to net income and earnings per share (the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles, or GAAP). Net income excluding special items and earnings per share excluding special items are useful to evaluate the performance of the company because it excludes non-recurring non-cash impairments and other costs, which management believes are not indicative of the ongoing operating results of the business. A reconciliation of net income and earnings per share excluding special items to net income and earnings per share as computed under GAAP is illustrated below:

 
Second Quarter
 
First Six Months
 
2015

 
2014

 
2015

 
2014

 
(In millions, except share data)
 
 
 
 
 
 
 
 
Net income (loss) - as reported

($34.5
)
 

$14.8

 

($42.7
)
 

$23.2

Earnings (loss) per share - as reported

($1.01
)
 

$0.34

 

($1.25
)
 

$0.53

 
 
 
 
 
 
 
 
Special items (after-tax):
 
 
 
 
 
 
 
Proved property impairments
16.3

 
—

 
16.3

 
—

Unproved leasehold interest impairments

13.5

 
—

 
13.5

 
—

Exploratory dry hole expense and other charges
6.9

 
—

 
6.9

 
—

Total special items (after-tax)

$36.7

 

$—

 

$36.7

 

$—

Total special items per share (after-tax)

$1.07

 

$—

 

$1.07

 

$—

 
 
 
 
 
 
 
 
Net income (loss) - excluding special items

$2.2

 

$14.8

 

($6.0
)
 

$23.2

Earnings (loss) per share - excluding special items

$0.06

 

$0.34

 

($0.18
)
 

$0.53


Real Estate Segment EBITDA is a non-GAAP financial measure within the meaning of Regulation G of the Securities and Exchange Commission. Non-GAAP financial measures are not in accordance with, or an alternative to, U.S. Generally Accepted Accounting Principles (GAAP). The company believes presenting non-GAAP Real Estate Segment EBITDA is helpful to analyze financial performance without the impact of items that may obscure trends in the company’s underlying performance. A reconciliation is provided below:
 
Second Quarter
 
First Six Months
 
2015

 
2014

 
2015

 
2014

 
(In millions)
 
 
 
 
 
 
 
 
Real Estate Segment Earnings in accordance with GAAP

$15.5

 

$27.3

 

$24.6

 

$50.9

Depreciation, Depletion & Amortization
2.0

 
0.7

 
3.7

 
1.3

Real Estate Segment EBITDA

$17.5

 

$28.0

 

$28.3

 

$52.2

 
 
 
 
 
 
 
 


14

Second Quarter 2015 Financial Results August 5, 2015

 
Notice to Investors This presentation contains “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements are typically identified by words or phrases such as “will,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “forecast,” and other words and terms of similar meaning. These statements reflect management’s current views with respect to future events and are subject to risk and uncertainties. We note that a variety of factors and uncertainties could cause our actual results to differ significantly from the results discussed in the forward-looking statements, including but not limited to: general economic, market, or business conditions; changes in commodity prices; opportunities (or lack thereof) that may be presented to us and that we may pursue; fluctuations in costs and expenses including development costs; demand for new housing, including impacts from mortgage credit rates or availability; lengthy and uncertain entitlement processes; cyclicality of our businesses; accuracy of accounting assumptions; competitive actions by other companies; changes in laws or regulations; and other factors, many of which are beyond our control. Except as required by law, we expressly disclaim any obligation to publicly revise any forward-looking statements contained in this presentation to reflect the occurrence of events after the date of this presentation. This presentation includes Non-GAAP financial measures. The required reconciliation to GAAP financial measures can be found as an exhibit to this presentation and on our website at www.forestargroup.com. 2

 
Focused On Increasing Net Asset Value By Growing Core Real Estate Business and Executing Strategic Initiatives 3 • Strategic and Disciplined Investment in Residential and Mixed-Use Communities • Developing Portfolio of Core Multifamily Properties That Generate Recurring Cash Flow • Harvesting Cash Flow From Oil and Gas Business By Significantly Lowering Capital Expenditures and Operating Costs • Transitioning Timberland Into Real Estate Properties Focused On Maintaining Balance Sheet Strength and Solid Growth Platform To Maximize Shareholder Value

 
Second Quarter 2015 Financial Results Impacted By Non- Cash Charges Related To Non-Core Oil and Gas Assets 4 ($ in Millions, except per share data) Q2 2015 Q2 2014 Net Income (Loss) - As Reported ($34.5) $14.8 Earnings (Loss) Per Share - As Reported ($1.01) $0.34 Special Items After-Tax: Proved Property Impairments 16.3 -- Unproved Leasehold Interest Impairments 13.5 -- Exploratory Dry Hole Expense and Other 6.9 -- Total Special Items After-Tax $36.7 -- Net Income – Excluding Special Items* $2.2 $14.8 Net Income Per Share – Excluding Special Items* $0.06 $0.34 • Q2 2015 oil and gas segment results include non-cash charges of ($36.7) million, or ($1.07) per share, after-tax, principally associated with impairment of proved properties and unproved leasehold interests, and exploratory dry hole expense associated with non-core oil and gas assets in Oklahoma, Nebraska and Kansas. Note: Q2 2015 weighted average diluted shares outstanding were 34.3 million compared with 43.7 million in Q2 2014 * Reconciliation to GAAP can be found in the appendix to this presentation.

 
Oil and Gas Segment Results Adversely Impacted By Non- Cash Charges Related to Non-Core Assets 5 ($ in Millions, except per share data) Q2 2015 As Reported Q2 2015 Excluding Special Items* Q2 2014 As Reported Segment Earnings (Loss) Real Estate $15.5 $15.5 $27.3 Oil and Gas (56.9) (0.4) 9.5 Other Natural Resources (0.0) (0.0) 2.1 Total Segment Earnings (Loss) ($41.4) $15.1 $38.9 • Q2 2014 real estate segment results include a $10.5 million gain associated with a non-monetary exchange of leasehold timber rights for 5,400 acres of undeveloped land from the Ironstob venture. • Q2 2015 oil and gas segment results include non-cash charges of approximately ($57) million, pre-tax, principally associated with ($25) million in impairment of proved properties, ($21) million related to impairment of unproved leasehold interests, and approximately ($11) million principally associated with exploratory dry hole costs associated with non-core oil and gas assets in Oklahoma, Nebraska and Kansas. • Q2 2014 other natural resources segment results include earnings of $0.7 million associated with a groundwater reservation agreement and a $0.7 million gain on termination of a timber lease in connection with land sales from the Ironstob venture. * Reconciliation to GAAP can be found in the appendix to this presentation.

 
Midtown – Cedar Hill, Texas

 
Excluding Second Quarter 2014 Non-Cash Gains – Real Estate Segment Results Reflect Stable Market Demand ($3.2) ($2.9) $27.3 $3.6 $1.4 ($9.3) ($0.8) ($0.6) $15.5 $0 $10 $20 $30 $40 Q2 2014 Lot Sales Multifamily and Income Producing Properties Gains* Mitigation Sales and Interest Income Undeveloped Land Sales Residential & Commercial Tract Sales Operating Expenses & Asset Impairments Q2 2015 Segment Earnings Reconciliation Q2 2014 vs. Q2 2015 ($ in millions) Q2 2015 Activity Residential Lots – 519 lots • >$73,400 avg. price per lot - up >14% vs Q2 2014 • >$34,400 gross profit per lot - up >25% vs Q2 2014 Residential Tracts – 783 acres of non-core real estate • >$5,100 avg. price per acre • $1.3 million in earnings $1.2 million gain related to reduction in surety bond associated with Cibolo Canyons District bond offering in 2014 Q2 2014 results include $10.5 million gain related to Ironstob exchange* 7Note: Includes ventures *Includes $10.5 million gain in Q2 2014 associated with a non-monetary exchange of leasehold timber rights for 5,400 acres of undeveloped land from the Ironstob venture and a $1.2 million gain in Q2 2015 from the reduction of a surety bond issued in connection with the Cibolo Canyons Special Improvement District bond offering in 2014

 
Stable Market Demand in Texas Supported By Low Inventories and Favorable Job Growth 8 Texas New Home Inventory Below Equilibrium 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 0 5,000 10,000 15,000 20,000 25,000 30,000 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 Housing Inventory Months of Supply Equilibrium M on th s of S up pl y Ne w Ho m e In ve nt or ie s Note: Includes ventures Source: Metrostudy and Bureau of Labor Statistics Texas Job Growth Exceeding National Average June 2015 vs. June 2014 Austin 3.3% Dallas / Fort Worth 3.4% Houston 1.9% San Antonio 2.8% U.S. Average 2.1% Market Lot Sales Average Price Houston 364 $74,500 Dallas / Fort Worth 192 $69,600 Atlanta 100 $60,500 San Antonio 80 $83,900 Denver 41 $87,100 Nashville 18 $153,500 Other 13 $44,300 Total 808 $74,400 Forestar Lot Sales By Market YTD Q2 2015

 
9Note: Includes Ventures Lots Under Option Contracts Highest Since Q1 2014 0 500 1,000 1,500 2,000 Q 11 2 Q 21 2 Q 31 2 Q 41 2 Q 11 3 Q 21 3 Q 31 3 Q 41 3 Q 11 4 Q 21 4 Q 31 4 Q 41 4 Q 11 5 Q 21 5 Re sid en tia l L ot s Developed Lots Lots Under Development 2015 total lot sales expected to be in the range of 1,800 – 1,900 lots Abnormally wet weather conditions in Texas during Q2 2015 resulting in construction and inspection delays • Timing risk related to completion and sale of ~300 lots under development near Houston, which may be delayed until Q1 2016 Full Year 2015 Lot Sales Activity Lot Sales Activity Supported By Stable Market Demand and Low Housing Inventories Estimated FY 2015 Lot Sales By Market Market Lot Sales Avg. Lot Price Houston 825 – 875 $64,800 Dallas / Fort Worth 475 – 500 $71,800 Atlanta 160 – 170 $59,700 San Antonio 220 – 230 $86,700 Denver, Charlotte & Other 90 $85,900 Nashville 30 – 35 $156,600 Total 1,800 – 1,900 $71,600

 
Multifamily Markets Remain Undersupplied Following Housing Downturn, Driving Demand In Our Target Markets 10 0 300 600 900 1,200 1,500 1,800 Jun 1959 Jun 1966 Jun 1973 Jun 1980 Jun 1987 Jun 1994 Jun 2001 Jun 2008 Jun 2015 Single-Family Starts Multifamily Starts U.S. Housing Starts Recessions Multifamily Construction Shortfall 2009 – May 2015 = ~500,000 Units *Source: U.S. Census Bureau, Metrostudy and Axiometrics Single-Family 50 Yr. Avg. Multifamily 50-Yr. Avg.

 
Growing Net Asset Value By Developing Solid Portfolio of Well Located Class A Multifamily Projects Multifamily Development Projects – Q2 2015 ($ in millions) Project Market FOR Ownership Units % Complete Projected Total Development Cost* Projected Total FOR Contribution* Co m pl et ed Eleven Austin 100% 257 100% $40 $25 Midtown Dallas 100% 354 100% 35 10 Un de r C on st ru ct io n 360° Denver 20% 304 95% 56 – 57 5 Acklen Nashville 30% 320 95% 58 – 59 6 HiLine Denver 25% 385 ~30% 71 – 73 6 – 7 Elan 99** Houston 90% 360 ~20% 53 – 55 13 – 14 Music Row Nashville 100% 230 <1% 47 – 48 16 – 17 Dillon Charlotte 100% 379 <1% 81 – 83 28 – 30 69% 2,589 $441 – 450 $109 – 114 Downtown Edge Austin TBD 234 n/a $48 – 50 TBD Note: Forestar acquired partner’s 75% interest in Eleven venture for $21.5 million in Q3 2014 * Based on estimates, actual results may vary **FOR is limited partner and not developer of this project 11 Po te nt ia l De ve lo pm en t Si te

 
Investing In Solid Multifamily Development Opportunities Expected To Generate Recurring Cash Flows 12 Music Row – Nashville, Tennessee • 230-unit Class A luxury multifamily project with extensive amenities • Construction commenced Q2 2015 • Expected completion date Q3 2017 • Expected cost = $47 - 48 million • 60 - 65% project level financing • Expected stabilized NOI of > $3.5 million Music Row – Preliminary Renderings

 
Music Row Project Located in Strong Nashville Submarket With Strong Employment, Occupancy and Rent Growth 13 Nashville Growth Above U.S. Average June 2015 Nashville U.S. Avg. Job Growth 3.6% 2.1% Occupancy 96.3% 95.2% Rent Growth 5.1% 5.0%

 
Investing In Solid Multifamily Development Opportunities Expected To Generate Recurring Cash Flows 14 Dillon – Charlotte, North Carolina • 379-unit Class A luxury multifamily project with extensive amenities and 12,000 sq. ft. ground floor retail • Expected cost = $81 - 83 million • 60 - 65% project-level financing • Construction started Q2 2015 • Expected completion YE 2017 • Expected stabilized NOI of ~$6 million Dillon – Preliminary Renderings

 
15 Charlotte Job Growth Well Above U.S. Avg. June 2015 Charlotte U.S. Avg. Job Growth 3.3% 2.1% Occupancy 95% 95% Rent Growth 5.3% 5.0% Dillon Project Located in Strong Charlotte Submarket With Strong Employment, Occupancy and Rent Growth

 
Focused On Increasing Net Asset Value By Growing Core Real Estate Business Growing Net Asset Value Capitalizing on housing markets • Increasing lot margins • ~1,400 residential lots under option contracts Investing in multifamily opportunities • Started construction on two new projects with > 600 units in Nashville and Charlotte Strategic and disciplined acquisitions • YTD 2015 Community development acquisitions = $24 million • Acquired five future community sites ( >640 future lots) in Charlotte, Houston, Tucson, Nashville and Atlanta • Building solid portfolio of multifamily properties • 8 projects = ~2,600 units stabilized or under construction • Future development site with >230 expected units 16 FOR Share of Total Lot Gross Profit and Average Profit Per Lot Note: Includes ventures; excludes bulk lot sales activity $30 $52 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $0 $10 $20 $30 $40 $50 $60 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E FOR Share of Total Lot Gross Profit Average Profit Per Lot ($ in millions) YTD Q2 2015 FO R Sh ar e of T ot al L ot G ro ss P ro fit A ve ra ge P ro fit P er L ot

 
East Texas

 
Harvesting Value From Timberland Segment Earnings (Loss) Reconciliation Q2 2014 vs. Q2 2015 ($ in millions) $2.1 ($1.0) ($0.7) ($0.6) $0.2 ($0.0) $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 Q2 2014 Operating Costs Fiber Earnings Gain on Timber Lease Termination Water Earnings Q2 2015 Se gm en t E ar ni ng s (L os s) Q2 2015 Highlights • $0.2 million in revenues related to amortization and termination of existing groundwater reservation agreement • Sold > 55,300 tons of fiber, 49% lower vs. Q2 2014 due to short-term mill quotas • Average fiber pricing $13.62 per ton, down 19% vs. Q2 2014 due to higher mix of pulpwood 18Note: Includes ventures Note: Q2 2014 segment results include $0.7 million earnings associated with groundwater reservation agreement and $0.7 million gain on termination of a timber lease in connection with land sales from the Ironstob venture

 
Bakken / Three Forks - North Dakota

 
Well Results, Lower Oil Price Forecasts and Execution of Strategic Initiatives Drive Non-Cash Charges Related To Non-Core Oil and Gas Assets $9.5 ($51.0) $1.2 ($2.2) ($1.9) ($11.1) ($56.9) ($70) ($50) ($30) ($10) $10 $30 Q2 2014 Working Interest Volume Operating Expenses Impairment and Exploratroy Dry Hole Costs Working Interest Pricing Gain on Sale Working Interest Cost of Sales Legacy Minerals Q2 2015 Se gm en t E ar ni ng s (L os s) ($6.0) $4.6 Segment Earnings (Loss) Reconciliation Q2 2014 vs. Q2 2015 ($ in millions) Q2 2015 Highlights • Incurred non-cash charges of approximately ($57) million* • Oil production up >21% vs. Q2 2014** • Avg. working interest oil price down nearly 46% vs. Q2 2014** • Royalty interest production volume up ~16% vs. Q2 2014 • 9 Bakken / Three Forks wells came on line in Q2 2015 • Average ~2,240 BOEPD initial production • Leased 800 net mineral acres to third-parties for over $250 per acre, principally in Louisiana 20 * Q2 2015 non-cash charges Include ($25) million associated with proved property impairments, ($21) million related to unproved leasehold interest impairments and approximately ($11) million principally associated with exploratory dry hole costs related to non-core oil and gas assets in Oklahoma, Nebraska and Kansas. ** Oil volumes and prices include NGL’s Note: Includes ventures Bakken / Three Forks Well Pipeline AFE’s Approved YTD 2015 Non- Consent AFE’s in YTD 2015 Currently Drilling Waiting On Comp. Wells IP’d Total Producing Q2 2015 Estimated Remaining Gross Wells 11 5 2 10 26 146 ~300 Avg. WI 10% 15% 1% 6% 11% 8% ~11%

 
Harvesting Cash Flow From Oil and Gas Business By Significantly Lowering Capital Investments and Operating Costs Execution of Strategic Initiatives: 21 Note: Actual results may vary * Excludes $0.5 million in restructuring costs ** 2015 estimate based on current expected operator plans, and excludes over $40 million of capital investments related to YE 2014 well commitments $0 $5 $10 $15 $20 2014 Actual Q2 2015 Annualized Rate* Target An nu al O il & G as S eg m en t G &A E xp en se s Oil and Gas Segment Operating Expenses 2014 Actual vs. Target • Excluding restructuring costs, Q2 2015 segment operating costs down 44% vs. Q2 2014 • Excluding YE 2014 existing well commitments, FY 2015 capital investments expected to be down significantly vs. 2014 ($ in millions) $0 $20 $40 $60 $80 $100 $120 O il & G as S eg m en t C ap ita l E xp en di tu re s Oil and Gas Segment Capital Expenditures** 2014 vs. 2015 Estimated 2015 New Capital Investments** Carryover From 2014 2014 ($ in millions) * Targeting Positive Oil & Gas Segment Cash Flow By YE 2015 At Quarter-End Strip Pricing

 
Strategic Initiatives Update 22

 
Initiatives YTD 2015 Results Strategic and Disciplined Investments • Acquired five community development sites for $24 million = >640 future residential lots Generating Recurring Cash Flow • Started construction of two new multifamily projects in Nashville and Charlotte = >600 units Harvesting Cash Flow From Non-Core Oil and Gas Business • Targeting positive oil and gas segment cash flow by YE 2015 • FY 2015 new oil and gas capital investments expected to be down >80% vs. FY 2014* • Q2 2015 oil and gas segment G&A costs down 44% vs. Q2 2014 (excluding restructuring costs) Developing Cost Reduction Initiatives Across Company • Q2 G&A expenses down 7% vs. Q2 2014 Focused on Growing Core Real Estate Business and Increasing Net Asset Value 23 Focused On Maintaining Balance Sheet Strength, Financial Flexibility and Adequate Liquidity Providing Solid Platform For Real Estate Growth and Investment To Increase Net Asset Value * Excludes over $40 million of capital expenditures related to existing year-end 2014 well commitments

 
Forestar Investor Conference in Nashville - November 18-19 24 CONFERENCE AGENDA November 18 • Dinner – Market Outlook Presentation • Accommodations Available at Omni Hotel November 19 • Presentations by Forestar Senior Management • Tour of Multifamily and Master-Planned Communities Please RSVP with Anna Torma at (512) 433-5312 or at [email protected]

 
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Real Estate Segment KPI’s Q2 2015 Q2 2014 YTD Q2 2015 YTD Q2 2014 Residential Lot Sales Lots Sold 519 537 808 1,511 Average Price / Lot* $73,400 $64,100 $74,400 $50,200 Gross Profit / Lot* $34,400 $27,400 $35,500 $20,200 Commercial Tract Sales Acres Sold 21 3 54 3 Average Price / Acre $82,700 $96,800 $224,500 $96,800 Land Sales Acres Sold 1,248 3,208 1,979 12,537 Average Price / Acre $3,000 $2,500 $2,900 $2,200 Segment Revenues ($ in Millions) $39.4 $55.2 $72.2 $120.7 Segment Earnings ($ in Millions) $15.5 $27.3 $24.6 $50.9 YTD Q2 2014 average sales prices was approximately $62,100 per lot and average gross profit was approximately $26,100 per lot, excluding almost 370 bulk lot sales. Q2 2014 and YTD Q2 2014 real estate segment results include a $10.5 million gain associated with a non-monetary exchange of leasehold timber rights for 5,400 acres of undeveloped land with a partner in a consolidated venture. Note: Includes ventures 27 **** ** * * *

 
Other Natural Resources Segment KPI’s Q2 2015 Q1 2014 YTD Q2 2015 YTD Q2 2014 Fiber Sales Pulpwood Tons Sold 36,000 58,200 63,500 86,400 Average Pulpwood Price / Ton $9.39 $11.42 $9.06 $10.85 Sawtimber Tons Sold 19,300 49,600 39,400 78,500 Average Sawtimber Price / Ton $21.54 $23.23 $21.52 $22.67 Total Tons Sold 55,300 107,800 102,900 164,900 Average Price / Ton $13.62 $16.86 $13.83 $16.48 Recreational Leases Average Acres Leased 100,100 110,000 101,300 113,200 Average Lease Rate / Acre $9.34 $9.69 $9.30 $9.41 Segment Revenues ($ in Millions) $1.9 $3.5 $3.6 $5.0 Segment Earnings (Loss) ($ in Millions) * ($0.0) $2.1 ($0.4) $1.6 * Note: Segment results include costs of $0.7 million in Q2 2015, $0.8 million in Q2 2014, $1.7 million in YTD Q2 2015 and $2.0 million in YTD Q2 2014 associated with the development of our water initiatives. ** Q2 2014 and YTD Q2 2014 results include earnings of $0.7 million associated with a groundwater reservation agreement and a $0.7 million gain on termination ofatimber lease in connection with theIronstob venture 28 ** **

 
Oil and Gas Segment KPI’s Q2 2015 ** Q2 2014 YTD Q2 2015 ** YTD Q2 2014 Fee Leasing Activity Net Fee Acres Leased 800 1,380 1,623 3,121 Average Bonus / Acre $254 $352 $297 $347 Total Oil and Gas Interests * Oil Produced (Barrels) 262,000 225,300 531,900 382,300 Average Price / Barrel $53.37 $95.38 $46.68 $93.75 NGL Produced (Barrels) 27,200 12,000 50,900 27,000 Average Price / Barrel $17.54 $43.24 $18.35 $43.17 Natural Gas Produced (MMCF) 559.0 459.9 1,079.4 946.4 Average Price / MCF $2.65 $4.50 $2.91 $4.43 Total BOE 382,300 313,900 762,700 567,000 Average Price / BOE $41.70 $76.70 $37.89 $72.66 Segment Revenues ($ in Millions) $16.2 $24.4 $29.4 $41.9 Segment Earnings (Loss) ($ in Millions) * ($56.9) $9.5 ($59.8) $10.3 Gross Producing Wells (end of period) 942 948 942 948 29 * Includes our share of venture production: 40.1 MMcf in Q2 2015, 50.5 MMcf in Q2 2014, 82.4 MMcf in YTD Q2 2015 and 103.2 MMcf in YTD Q2 2014. ** Q2 2015 oil and gas segment results include approximately $57 million in non-cash charges principally related to impairment of proved properties and leasehold interests, and dry hole expense associated with non-core oil and gas assets in Oklahoma, Nebraska and Kansas. YTD Q2 2015 oil and gas segment results also include $3.3 million in restructuring costs associated with termination of Fort Worth office lease, retention bonus awards and employee severance costs and $0.9 million in gains associated with the sale of approximately 17,168 net acres of oil and gas leasehold interests in Nebraska and North Dakota and the disposition of 2 gross (1 net) producing oil and gas wells in Nebraska and Oklahoma.

 
Second Quarter 2015 Real Estate Pipeline 30 Real Estate Undeveloped In Entitlement Entitled Developed & Under Development Total Acres Undeveloped Land Owned 71,044 75,402 Ventures 4,358 Residential Owned 21,762 7,160 626 30,569 Ventures 900 121 Commercial Owned 2,668 1,073 529 4,583 Ventures 210 103 Total Acres 75,402 24,430 9,343 1,379 110,554 Estimated Residential Lots 15,333 2,270 17,603 Developed Lots = 902 Lots Under Development = 1,368 2014 Sales Activity $2,200 / acre $60,000 / lot* Q2 2015 FOR Basis ~$700 / acre ~$1,700 / acre ~$19,000 / lot ~$38,900 / lot * Excludes bulk sales

 
Second Quarter 2015 Earnings Reconciliation $14.8 ($34.5) $0.6$2.1 $0.3 ($43.2) ($7.7) ($1.4) ($40.0) ($20.0) $0.0 $20.0 Q2 2014 Share Based Comp Interest, Taxes & Other Expenses G&A Oil & Gas Real Estate Other Natural Resources Q2 2015 N et In co m e (L os s) Earnings Reconciliation Q2 2014 vs. Q2 2015 ($ in millions) 31 • Second quarter 2014 real estate segment results include a $10.5 million gain associated with a non-monetary exchange of leasehold timber rights for 5,400 acres of undeveloped land with a partner in a consolidated venture. • Q2 2015 non-cash charges Include ($25) million associated with proved property impairments, ($21) million related to unproved leasehold interest impairments and approximately ($11) million principally associated with exploratory dry hole costs related to non-core oil and gas assets in Oklahoma, Nebraska and Kansas.

 
Reconciliation of Non-GAAP Financial Measures (Unaudited) Forestar’s Segment EBITDA is a non-GAAP financial measure within the meaning of Regulation G of the Securities and Exchange Commission. Non-GAAP financial measures are not in accordance with, or an alternative to, U.S. Generally Accepted Accounting Principles (GAAP). The company believes presenting non-GAAP Segment EBITDA is helpful to analyze financial performance without the impact of items that may obscure trends in the company’s underlying performance. A detailed reconciliation is provided below outlining the differences between these non- GAAP measures and the directly related GAAP measures. Second Quarter Year-to-Date ($ in millions) 2015 2014 2015 2014 Real Estate Segment Earnings in accordance with GAAP $15.5 $27.3 $24.6 $50.9 Depreciation, Depletion & Amortization 2.0 0.7 3.7 1.3 Real Estate Segment EBITDA $17.5 $28.0 $28.3 $52.2 Oil & Gas Segment Earnings (Loss) in accordance with GAAP ($56.9) $9.5 ($59.8) $10.3 Depreciation, Depletion & Amortization 8.0 7.5 15.4 12.3 Oil and Gas Segment EBITDA ($48.9) $17.0 ($44.4) $22.6 Other Natural Resources Segment Earnings (Loss) in accordance with GAAP ($0.0) $2.1 ($0.4) $1.6 Depreciation, Depletion & Amortization 0.1 0.1 0.2 0.2 Other Natural Resources Segment EBITDA $0.1 $2.2 ($0.2) $1.8 Total Segment Total Segment Earnings (Loss) in accordance with GAAP ($41.4) $38.9 ($35.6) $62.8 Depreciation, Depletion & Amortization 10.1 8.3 19.3 13.8 Total Segment EBITDA ($31.3) $47.2 ($16.3) $76.6 32

 
Reconciliation of Non-GAAP Financial Measures (Unaudited) 33 In our second quarter and first six month 2015 earnings release and conference call presentation materials furnished to the Securities and Exchange Commission on Form 8-K on August 5, 2015, we used certain non-GAAP financial measures. The non-GAAP financial measures should not be relied upon to the exclusion of GAAP financial measures. These non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP financial statements and the accompanying reconciliations to corresponding GAAP financial measures, may provide a more complete understanding of our business. We strongly encourage investors to review our consolidated financial statements and publicly filed reports in their entirety. Reconciliation of Non-GAAP Financial Measures (Unaudited) The following table shows a reconciliation of net income before special items and earnings per share excluding special items to net income and earnings per share (the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles, or GAAP). Net income excluding special items and earnings per share excluding special items are useful to evaluate the performance of the company because it excludes non- recurring non-cash impairments and other costs, which management believes are not indicative of the ongoing operating results of the business. A reconciliation of net income and earnings per share excluding special items to net income and earnings per share as computed under GAAP is illustrated below: Second Quarter Year-to-Date ($ in millions except per share data) 2015 2014 2015 2014 Net Income (Loss) – As Reported ($34.5) $14.8 ($42.7) $23.2 Earnings (Loss) Per Share – As Reported ($1.01) $0.34 ($1.25) $0.53 Special Items (after-tax) Proved Property Impairments 16.3 ---- 16.3 ---- Unproved Leasehold Interest Impairments 13.5 ---- 13.5 ---- Exploratory Dry Hole Expense and Other Charges 6.9 ---- 6.9 ---- Total Special Items (after-tax) $36.7 $---- $36.7 $---- Total Special Items Per Share (after-tax) $1.07 $---- $1.07 $---- Net Income (Loss) – Excluding Special Items $2.2 $14.8 ($6.0) $23.2 Earnings (Loss) Per Share – Excluding Special Items $0.06 $0.34 ($0.18) $0.53

 
Reconciliation of Non-GAAP Financial Measures (Unaudited) 34 In our second quarter and first six month 2015 earnings release and conference call presentation materials furnished to the Securities and Exchange Commission on Form 8-K on August 5, 2015, we used certain non-GAAP financial measures. The non-GAAP financial measures should not be relied upon to the exclusion of GAAP financial measures. These non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP financial statements and the accompanying reconciliations to corresponding GAAP financial measures, may provide a more complete understanding of our business. We strongly encourage investors to review our consolidated financial statements and publicly filed reports in their entirety. Reconciliation of Non-GAAP Financial Measures (Unaudited) The following table shows a reconciliation of total segment earnings before special items to total segment earnings (he most directly comparable measure calculated and presented in accordance with generally accepted accounting principles, or GAAP). Total segment earnings excluding special items are useful to evaluate the performance of the company because it excludes non-recurring non-cash impairments and other costs, which management believes are not indicative of the ongoing operating results of the business. A reconciliation of total segment earnings excluding special items to total segment earnings as computed under GAAP is illustrated below: Second Quarter Year-to-Date ($ in millions except per share data) 2015 2014 2015 2014 Total Segment Earnings (Loss) – As Reported ($41.4) $38.9 ($35.6) $62.8 Special Items (pre-tax) Proved Property Impairments 25.1 ---- 25.1 ---- Unproved Leasehold Interest Impairments 20.8 ---- 20.8 ---- Exploratory Dry Hole Expense and Other Charges 10.6 ---- 10.6 ---- Total Special Items (pre-tax) $56.5 $---- $56.5 $---- Total Segment Earnings – Excluding Special Items $15.1 $38.9 $20.9 $62.8

 
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